Why Insurance Companies Make So Much Money

Although there’s an accelerated shift away from media such as television to more of a content-on-demand trend which is increasingly playing out online, airing an ad on television still ensures your message is seen and heard by the masses in their millions. Buying TV ad space is also still extremely expensive, with prime-time rates from a mere 15 years ago costing as much as £56 per second. With the average TV ad airing for around 30 seconds, that would have amounted to around £1,680 per ad, but it doesn’t end there because you can’t really just buy one slot to air one ad. It cost a lot 15 years ago, one can only imagine how much it costs today, yet you have insurance companies which book several 30-minute slots to air their comprehensive and detailed adverts.

These 30-minute ads air several times per day too and they also air over different channels, often at the same time to ensure the message is delivered even to those who try to channel-hop to avoid having to put up with them. Clearly insurance companies have huge marketing and advertising budgets and if you take into account the many other media through which they advertise, you can only imagine just how big the total marketing and advertising budget actually is. I mean sponsoring a professional football club which plies its trade in a league like the English Premier League, in addition to airing long ads on the telly says a lot about the size of their marketing budgets.

Companies don’t just spend willy-nilly on advertising. The advertising brings in much more business, so you can only imagine just how much money insurance companies make back through their advertising campaigns. There’s also the small matter of brokers – the people who effectively refer clients to insurance companies for some sort of compensation. Many insurers also pay commission to anybody who refers clients to them, not necessarily just brokers – and they pay very well too.

But just exactly how do insurance companies make money, and how do they make so much money at that? They have a large pool of money to draw on for investments which are virtually fail-proof and since they’re licensed to provide financial services, it’s very easy for the average insurance company to enter into many other areas of the financial services which generate them money for just providing those services. The overheads are very low compared to the returns, a good example of which is hiring staff to process payments. Every payment that’s processed has a fee attached to it, making for just one way through which financial services companies are making a serious killing. That’s why you’ll have what started out as an insurance company perhaps branching out into banking as well, and investment banking specifically.

Traditionally though, insurance companies ultimately just make a lot of money by having direct access to stockpiles of cash (contributed by clients as insurance premiums), which they invest in providing services from which they simply cannot lose money.

So yes, if you can get licensed as financial services provider and you’re at liberty to operate an insurance company (it takes a lot of start-up capital and a lot of hoop-jumping for compliance), you’re effectively licensed to print money.

Katie is a finance specialist with one of the biggest firms in London. From savings to investments, there’s nothing she can’t advise on and she’s here to help spread the word and help you on your way to financial freedom.